This is why you really need to research a company's growth potential before you buy its stock. Just because something's popular doesn't mean it can grow forever. Had all those investors realized that Facebook was a one trick pony they might not have lost 40% of their money (and counting...).
They had all these visions of grandeur that Facebook could plug various services to their existing users and make endless amounts of money. Maybe add a Facebook classified ads service, document sharing service, auction site, shopping e-store for its members that takes a small commission. Whatever other companies did, just copy it and add it on Facebook and watch users instantly abandon competitors. After all FB has close to a billion users. Little did they know that Facebook users were never that engaged nor will they ever be.
The collective hive mind of bored humans completely ignored Facebook Questions. Zuckerberg's first attempt at trying to cultivate its legion of human potatoes. He quickly pulled FB Questions after no one used it and tried again later by changing it to Ask Questions and shoving it right after the "Add Photo/Video" link above the status update box itself. People are still ignoring it. Its members are there to share photos and talk to friends, not seek knowledge, not sell photos, not start businesses, not buy digital products, not share documents, or anything else productive or profitable for that matter.
In general users follow the "One website per one purpose" rule. Auction site neanderthal, eBay learned that the hard way when it simply tried to tack on classified ads thinking its members would ditch craigslist. Even monopolistic cro-magnon Microsoft has tried and failed numerous times at getting its installed base to use more profitable tacked on services and products. Ironically they only succeeded in spreading the worst internet browser in human history this way. Facebook's still in denial about it's useless network of potatoes. Sorry. Humans.
After all these years Silicon Valley still values massive droves of bored users without problems over clusters of customers with money in hand. In some ways they're right, Facebook still makes massive amounts of ad revenue and is still profitable. But I doubt it'll experience any further population boom or miraculous revenue growth.
The company isn't going anywhere for now, but as Facebook fatigue sets in and members find new and easier ways to share photos with friends (a user's main activity) things might not always be "flowers and sunshine" for FB. And in the future we'll look back in hindsight and say "I can't believe they didn't foresee it, all the signs were there."
> Had all those investors realized that Facebook was a one trick pony they might not have lost 40% of their money (and counting...).
No, I am sorry but this is wrong. You didnt need to realize it was a "one trick pony". All you had to do is read their P/E at the IPO. This should scare you away.
The major issue here was that users and investors both forgot that stock market doesnt care how big of a celebrity you are (as a stock). Math and basic accounting rules thats what counts. Besides you had many smart guys comin up on a TV explaining how wrong this investment is.
Not really. Look at Amazon's PE, keeping strong since years and much higher than Facebook's. If there is really a huge growth potential and a good track of growth for many years, a high PE can be justified. Of course, the future will tell us who was right...
Amazon is often brought up in PE discussions, but as far as FB is concerned it's apples and oranges when you compare the business inputs and outputs of each.
I can try. Amazon sells physical products, while Facebook sells eyeballs to advertisers. This is how both businesses are setup to make money, at least at the days of IPO. While with Amazon you use it because you want a product, with Facebook you do not want to be plastered with Ads, but you have no choice.
Amazon is a solid horse with no "kill me" obstacles on its way. Sure in 150 years you will have a machine a size of your fridge and you download blueprint from internet and the product is being 3d-printed for you, but since we not there just yet everyone needs products that Amazon offers and shift is towards selling stuff online. Mobile movement is to Amazon irrelevant while it may kill Facebook.
If you look at the studies that were done about high PE firms you will see that those firms were not attempting to secure the maximum valuation possible @ IPO. In FB's case they were attempting to secure a $100 billion valuation (the maximum valuation that any stock prognosticator had called for.) I also do not believe high PE studies go further back than the 1990's. There is something there, but more data is needed.
No, this is wrong. Earnings are almost totally irrelevant at this stage. Companies raise money through an IPO because they are in growth mode which typically means minimal or negative earnings.
People are mobile online, they aren't stuck on any controlled ecosystem. This is what will be the end to Facebook, along with their abusing of members.
> Ironically they only succeeded in spreading the worst internet browser in human history this way.
IE6 came out in 2001, and at that time was the most standards-compliant and feature full of all the browsers on the market (well, except for IE 5.5 for MacOS).
Why do people keep compairing it to the latest versions of Chrome and Firefox?
It's not what you release, it's how you maintain what you release. MS is at failt for using monopolistic methods to force a poorly maintained browser.
To this day IE is still garbage, it's gotten better but even the latest IE9 has simple rendering issues. It still doesn't have text-shadow support and if you use gradients with rounded corners it destroys the rounded corners and cancels them out. So much for modern :(
Did you ever think that maybe those investors aren't looking for a short term return and don't care about the stock price day to day. You know the type of investors we actually need more of.
And if you actually were a little more creative you would see that Facebook doesn't have to bundle everything into the website. It can have separate brands like Instagram and grow into new markets that way. And with its sheer user base and content it would be able to decimate smaller competitors.
You're 100% right about long term investors. I remember seeing a statistic that shows most of today's most successful stocks started out bombing at their IPOs.
I didn't mean to come out as an armchair expert, just a believer in common sense. I reached my opinion by bundling the stock drop with: 1) Facebook's "ad click bots" story (I had a similar problem when I advertised on FB years back and have been hearing on and off about Facebook ad problems a lot over the years. 2) The revelation that at minimum 10% of FB accounts are fake (still not a bad percentage assuming it isn't secretly higher). 3) Revenue being based mainly on advertising (whose 0.1% click-through rate is going down each and every year). 4) FB getting closer to reaching its maximum realistically possible users. 5) A serious lack of innovation, drive, diversifying or anything at all going on at Facebook. 6) Near zero horizontal growth with no sign of vertical growth either.
At the moment it's just a sitting duck. I mean, my God what have they really done all these years? When a company branches out too far we call it a "Microsoft", when it has all branches and no trunk we call it a "Yahoo", and when it has only a trunk without branches it's now a "Facebook". The fact that they released "time-line" and "ask questions" shows how few options they have at growing or expanding (or how few they've tried). One trick, one pony indeed. They might go the way of Google and start expanding and experimenting after their IPO but from what we've seen. I'm not so sure at all.
The fact that they released "time-line" and "ask questions" shows how few options they have at growing or expanding (or how few they've tried).
I think the greater concern for Facebook is that they have tried to expand their reach on several occasions in ways that would seem to favour them commercially, usually at the expense of people's privacy and/or making the user experience worse, but they have discovered that beyond a certain level of tolerance they will get enough pushback from their users to cancel the plans and they still have to eat the negative PR for a while. By your analogy, they want the trunk to keep growing, but the roots can't go any deeper to support it.
You didn't need to be an expert for this one. You could have seen the inevitable dive coming with nothing but the most basic understanding of stock markets and concrete measures like the expected price/earnings ratio, without even referring to anything specific about how Facebook operates.
And if you did consider anything deeper than that, applying the slightest common sense to where Facebook's growth has come from so far and the current global population for example, or looking at Facebook's dubious record with regard to building a sustainable, efficient advertising system to monetize their users, or keeping those users on-side with sensitive issues like privacy or just the everyday user experience, every single one of these indicators would have been a red flag.
Did you ever think that maybe those investors aren't looking for a short term return and don't care about the stock price day to day. You know the type of investors we actually need more of.
I imagine most people who bought Facebook were banking on an irrational market-driven rise in the early days followed by a quick cash-out. You know, exactly the type of investors we actually need fewer of. Anyone who made the slightest attempt to consider the fundamentals from either an economic or a business standpoint was on a different continent on IPO day.
And if you actually were a little more creative you would see that Facebook doesn't have to bundle everything into the website. It can have separate brands like Instagram and grow into new markets that way. And with its sheer user base and content it would be able to decimate smaller competitors.
Except that in something like eight years so far, they have no demonstrated record of successfully doing those things, so banking on hypothetical future values based on what they might do (assuming any of a dozen major tech firms don't each their lunch first) is exactly the kind of foolish speculation that drives a $38 starting point.
> Did you ever think that maybe those investors aren't looking for a short term return and don't care about the stock price day to day. You know the type of investors we actually need more of.
That kind of intelligent investor was probably unlikely to buy in on a clearly overhyped IPO, in fairness.
Yes agreed and +1. I believe it was Warren Buffet who said: on stock exchange, every long term investment is a missed short term investment.
But obviously you wont find a person in his her sound mind (not to mention financial guy) who would say: hey lets buy now and even if it goes down 40% thats fine we are in it long run... (lol)
Besides Facebook is a special example. It was banksters fraud perfectly executed. Yes Facebook makes money. Yes, it is self sustainable, yes it will pay off all its debts and creditors. Yes it doesnt go anywhere. But the overbloated IPO price with this PE was a freudster move. This stock belongs to single digit wagon. When it gets there, then consider buying for a $1 or $2 pop accordingly to good Q, but until we get there respect your money for God sake!
Exactly. Facebook fills a certain need reasonably well at the moment, and it's massive because of the network effect. But I have no difficulty imagining much better things arriving in the next 5-10 years. Same deal with Twitter.
All the successful "social" stuff captures and defines how we're using technology now, but that changes very quickly.
I give bookface about 5 years. I deleted my account last year, as have many of the tech saavy people I know. Looking at current feeds when my friends and family log in, I see nothing but spam and ads. Not quite sure what will replace it, but signs clearly point toward a replacement.
They had all these visions of grandeur that Facebook could plug various services to their existing users and make endless amounts of money. Maybe add a Facebook classified ads service, document sharing service, auction site, shopping e-store for its members that takes a small commission. Whatever other companies did, just copy it and add it on Facebook and watch users instantly abandon competitors. After all FB has close to a billion users. Little did they know that Facebook users were never that engaged nor will they ever be.
The collective hive mind of bored humans completely ignored Facebook Questions. Zuckerberg's first attempt at trying to cultivate its legion of human potatoes. He quickly pulled FB Questions after no one used it and tried again later by changing it to Ask Questions and shoving it right after the "Add Photo/Video" link above the status update box itself. People are still ignoring it. Its members are there to share photos and talk to friends, not seek knowledge, not sell photos, not start businesses, not buy digital products, not share documents, or anything else productive or profitable for that matter.
In general users follow the "One website per one purpose" rule. Auction site neanderthal, eBay learned that the hard way when it simply tried to tack on classified ads thinking its members would ditch craigslist. Even monopolistic cro-magnon Microsoft has tried and failed numerous times at getting its installed base to use more profitable tacked on services and products. Ironically they only succeeded in spreading the worst internet browser in human history this way. Facebook's still in denial about it's useless network of potatoes. Sorry. Humans.
After all these years Silicon Valley still values massive droves of bored users without problems over clusters of customers with money in hand. In some ways they're right, Facebook still makes massive amounts of ad revenue and is still profitable. But I doubt it'll experience any further population boom or miraculous revenue growth.
The company isn't going anywhere for now, but as Facebook fatigue sets in and members find new and easier ways to share photos with friends (a user's main activity) things might not always be "flowers and sunshine" for FB. And in the future we'll look back in hindsight and say "I can't believe they didn't foresee it, all the signs were there."